2019: Don’t drag Nigeria back to SAP era, CBN governor tells Atiku

Godwin-Emefiele
Godwin Emefiele, CBN Governor

The Central Bank of Nigeria (CBN) on Tuesday rejected suggestions by the Peoples Democratic Party (PDP) flagbearer in the 2019 presidential elections, Atiku Abubakar, he would jettison the current monetary policy to stabilise the market and strengthen the economy, once elected into office.

Since July 2016, the CBN adopted the monetary policy that encouraged it to tighten the liquidity supply in the economy to stabilise the exchange rate and strengthen the economy.

The policy involved increasing the Cash Reserve Ratio (CRR) on public sector deposit as well as the controlling monetary policy rate (MPR).

From 12 per cent in June 2016, the MPR, along with the CRR and liquidity ratio, remained unchanged at 14 per cent, 22.5 per cent, and 30 per cent consecutively in the last 31 months.

While the MPR is the rate the CBN lends to commercial banks, the CRR is the quantum of funds kept with the CBN by a commercial bank as reserves. Liquidity ratio is the level of currency supply allowable in the market.

Atiku Criticises CBN

Speaking recently in an interview with The Africa Report, Mr Abubakar said he would risk plunging Nigeria’s economy into hyperinflation by free-floating the naira if elected President next month.

Mr Abubakar said the policy will allow free market to determine the value and exchange rate of the naira in the country.

“I would prefer to float the naira, because I believe that will bring about a more stable exchange rate. Therefore, foreign investors are more likely to return to Nigeria and invest as much as possible,” he said.

“The country experienced currency crisis, capital flight and we saw a situation where the exchange rates, even in the black market had moved up in February to N525 to the dollar, and I was being told that by March it will hit up to N1,000. God knows what it could have risen to by April or May of 2017.”

But, as a result of the actions of the CBN, today all markets, including the Bureau de change markets have come down to about N360 to the dollar. Some people are even selling slightly below N360 to the dollar.

Until April 2017, financial experts recall the country experienced currency crisis, capital flight and unstable exchange rates.

“Even the exchange rate in the black market, or parallel foreign exchange market, moved up in February 2016 to as high as N525 to the dollar, until the CBN resolved to adopt the tightening policy in April 2017,” one of the experts familiar with the issue said on Tuesday after the MPC meeting in Abuja.

“As a result of the CBN policy, today the exchange rate in all the markets, including the Bureau de change market, have moderated to about N360 to the dollar,” he added.

CBN Reacts

Following the first meeting for 2019 of the Monetary Policy Committee (MPC), during the media briefing in Abuja, a journalist sought the reaction of the CBN governor, Godwin Emefiele, to Mr Abubakar’s suggestion.

Mr Emefiele, who faulted the PDP presidential candidate’s criticism of the CBN’s monetary and foreign exchange policies, dismissed insinuations about the existence of a capital control regime in the country.

“First, let me say, there is no capital control regime in Nigeria today because you cannot find the CBN’s hands trying to intervene in the demand and supply of foreign exchange market in the country,” he said.

As an independent institution, Mr Emefiele said the CBN was completely apolitical in its activities and would not want to be led into a terrain that could not be predictable.

MPC Rejects Free-Floating Policy

During the MPC meeting, he said members sought the review of the issue to establish whether there was any merit in the call for CBN to look at ‘free-floating’ the national currency or allow free imports of goods that can be produced locally in Nigeria.

“The MPC came to a conclusion this was a wrong premise. We cannot be talking about allowing imports of items that can be produced in-country today, exporting jobs from Nigeria to foreign countries, and we say we have the interest of Nigeria at heart.

“We do not agree with anybody on that. It is a wrong premise to say he (Atiku) will allow imports to just flood the country just because he wants to please anybody. That is not in the country’s interest.

“We (the CBN) are apolitical. We will remain apolitical. We do not want anybody to drag the Central Bank into issues that are within our realm of interest, otherwise, we will respond to it,” Mr Emefiele said.

On free-floating of the currency market, the CBN governor said the MPC resolved it was equally a wrong premise, because “it is as good as saying the country should go back to the era of structural adjustment programme in Nigeria”.

“The implication can better be imagined. It will certainly lead to capital flight, massive depreciation and devaluation of the Nigerian currency, and ultimately lead to a currency crisis in Nigeria. We should all know that it is the route to perdition to ever go in that direction (free-floating).”

What’s SAP

“Structural adjustment” is a “free market” economic policy reforms imposed on developing countries by the World Bank and International Monetary Fund (IMF as a condition for loans.

In 1986, the Ibrahim Babangida military administration approached the World Bank and the IMF for a loan to bail out the country’s struggling economy.

Some of the conditions for granting the loan included the devaluation of the Naira; trade liberalisation; cancellation of government subsidies; wage control and higher interest rate or loan to Nigerian businesses.

The conditions resulted in the transition from a fixed exchange rate regime to a floating exchange rate regime in Nigeria, including the foreign exchange market that was not controlled by any other force than market forces of demand and supply.

With the introduction of the SAP on July 1, 1986, the currency exchange rate remained volatile, trending consistently downward, while inflation and import indices continued to rise till it was terminated by the government in 2006.

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